CMS Addresses Telehealth and Overhauls Skin Substitutes in CY 2026 Physician Fee Schedule Proposed Rule

By: Daniel Ayyash, Esq.
Wachler & Associates, P.C.
September 2025

Recently, the Centers for Medicare & Medicaid (CMS) released the calendar year (CY) 2026 Physician Fee Schedule (PFS) Proposed Rule, introducing sweeping changes to Medicare Part B payment policy. Among the most significant updates are those addressing Medicare telehealth policy and a restructuring of how Medicare pays for skin substitute products commonly used by wound care providers.

Medicare Telehealth Policy Proposed Changes

Changes to the Medicare Telehealth Services List

In the Proposed Rule, CMS proposes simplifying the current five-step process to determine if a service qualifies for the Medicare Telehealth Services List. Under the new process, CMS would only keep three criteria: the service must be separately payable under the PFS; the service must fall within the scope of certain federal laws regulating telehealth services; and the service must be deliverable through real-time, two-way interactive communication. This change aims to lower provider burden and speed up access to new telehealth services.

Based on the revised review process, CMS proposes adding five new services to the Medicare Telehealth Services List for CY 2026:

• Multiple-family group psychotherapy (CPT 90849)
• Group behavioral counseling for obesity (HCPCS G0473)
• Infectious disease consultation add-on for inpatient/observation visits (HCPCS G0545)
• Diagnostic analysis, programming, and verification of auditory osseointegrated devices (CPT 92622 and 92623)

Changes to Telehealth Frequency Limitations

Additionally, CMS proposes to permanently remove frequency limitations on certain telehealth services. Currently, there are restrictions on how often subsequent inpatient visits, nursing facility visits, and critical care consultations can be provided via telehealth. CMS cited claims data from 2020 to 2023 showing that less than five percent of beneficiaries received these services via telehealth. This shift would give clinicians more freedom to decide how and when to use telehealth in patient care, and possibly increase its utilization.

Limited Removal of Certain Telehealth Restrictions

CMS also proposes to permanently remove the geographic restriction and originating site requirements for telehealth services, but only for a specific new Ambulatory Specialty Model (ASM). The new ASM applies to payments for services related to heart failure and low back pain. Notably, CMS declines to propose a permanent removal of these restrictions for other Medicare services that can be performed via telehealth, which have been allowed through repeated extensions of the COVID-19 public health emergency (PHE) flexibilities and waivers. Unless Congress extends or makes these flexibilities permanent, they will expire on September 30, 2025, and pre-PHE telehealth restrictions and requirements will be reinstated on October 1, 2025.

Permanent Definition of Direct Supervision

Lastly, CMS proposes to permanently adopt a definition of direct supervision that permits such supervision to be achieved via real-time audio/video communications technology (excluding audio-only). Traditionally, “direct supervision” required a physician to be physically present in the office and immediately available to provide assistance. However, during the COVID-19 PHE, CMS permitted supervising practitioners to be “immediately available” through real-time audio/video technology instead of being physically present. This proposed new definition is a further step toward flexibility and modernization.

Medicare Skin Substitutes Reimbursement Proposed Changes

Skin Substitutes Reclassified as Incident-to Supplies

Historically, Medicare has paid for skin substitutes as biological products under the Social Security Act, using the Average Sales Price (ASP) methodology to determine reimbursement rates. However, CMS has raised concerns about increasing costs and utilization rates, noting that Medicare Part B spending on skin substitutes rose from millions in 2019 to billions in 2024.

To address that increase, starting January 1, 2026, CMS proposes that providers bill separately for skin substitutes that are not regulated as biologicals under Section 351 of the Public Health Service Act. Instead, CMS proposes to classify these products as incident-to supplies when used with a covered application procedure under the PFS in non-facility settings and under the Outpatient Prospective Payment System (OPPS) in the outpatient setting. However, Medicare will continue paying for Section 351-regulated biologicals using the current ASP methodology.

Facility and Non-Facility Price Consistency

CMS also proposes standardizing pricing for skin substitute applications across both facility (e.g., hospital) and non-facility (e.g., physician office) settings. Although CMS initially considered separate payment in the non-facility setting, CMS ultimately determined that a uniform payment approach better supports clinical decision-making. By reducing payment differences between care settings and product types, CMS hopes to ensure that treatment site choices focus on patient needs rather than higher reimbursements.

Categorization of Products Based on FDA Categories

To further address the rising costs related to separate payments for skin substitutes in the non-facility setting and skin substitutes altogether, CMS proposes categorizing these products based on FDA regulatory classifications. Specifically, CMS recommends grouping skin substitutes that are not regulated as drugs or biological products under Section 351 of the Public Health Service Act into three payment categories aligned with FDA pathways: premarket approvals (PMAs), 510(k) clearances, and Section 361 human cells, tissues, and cellular and tissue-based products (HCT/Ps). CMS believes this categorization will improve payment accuracy, better align valuation under the Physician Fee Schedule, and enhance predictability and administrative efficiency. Beginning in 2026, CMS also proposes a single national payment rate of approximately $125.38 per square centimeter across all three FDA categories, prior to geographic adjustments, based on proposed practice expense (PE) and malpractice (MP) relative value units (RVUs).

In Sum

Beginning October 1, 2025, if Congress does not act to permanently implement the currently extended PHE Medicare telehealth flexibilities and waivers, those flexibilities will expire, and pre-PHE Medicare telehealth rules will resume. Beginning January 1, 2026, if finalized, changes outlined in the Proposed Rule may significantly impact Medicare providers furnishing telehealth services and alter how Medicare wound care providers are reimbursed for skin substitute products.

Under the Proposed Rule, skin substitutes not regulated under Section 351 of the Public Health Service Act will be classified as incident-to supplies across both facility and non-facility settings. These products would be grouped into three payment categories based on FDA regulatory pathways: PMA, 510(k), and Section 361 HCT/P. Payment rates for each category will be calculated using a volume-weighted average ASP, or the Mean Unit Cost (MUC) methodology if ASP is unavailable, and will initially be set at approximately $125.38 per square centimeter before geographic adjustments. CMS also proposes to codify the definition of “biological” to clarify eligibility for ASP-based reimbursement under the Social Security Act.

Providers furnishing Medicare telehealth services and Medicare wound care providers should understand the proposed changes to Medicare telehealth policy, expiration of the PHE-era telehealth flexibilities and waivers, and proposed changes to skin substitutes regulation and reimbursement. Such providers should be prepared to take steps to strengthen compliance and adapt to these proposed changes if finalized. The deadline to submit comments to the Proposed Rule has passed on September 12, 2025.